[2025] EWHC 2107 (Comm)

The Court must set aside the default judgments against the First and Second Defendants pursuant to CPR rule 13.2(a) because judgment was wrongly entered, as the condition in CPR rule 12.3(1) - that the time for filing an acknowledgment of service had not yet expired - was not satisfied (Shiblaq v Sadikoglu [2004] 2 All ER (Comm) 596, at para. 20-24 and 27).

The Claimant purported to serve the First and Second Defendants by serving proceedings on Law Debenture, a process service agent appointed under clause 40.2 of the Facility Agreement. In so doing, the Claimant relied on CPR rule 6.11 that permits service by a contractually agreed method (Mr Khatoun’s first witness statement, para. 158).

The Claimant’s reliance on CPR rule 6.11 presupposes that the First and Second Defendants are each a party to the Facility Agreement. If the First and Second Defendants were not parties to the Facility Agreement, then the Claimant cannot rely on CPR rule 6.11. It follows that if the Court is satisfied that the First and Second Defendants are not parties to the Facility Agreement, or at least if the Court is satisfied that at a trial of this matter the First and Second Defendants have a real prospect of successfully showing that they were not party to the Facility Agreement, then the Court must set aside the default judgments against the First and Second Defendants.

Even if the Claimant was entitled to rely on CPR rule 6.11 and serve proceedings by a method agreed under the Facility Agreement, then service under CPR rule 6.11 was still defective and the Claimant cannot rely on the same.

Although it is acknowledged that valid service on a process service agent may be effective and the Courts will aim to uphold contractual clauses permitting service of proceedings on a process service agent (see for example, Cargill International Trading Pte Ltd v Uttam Galva Steels Ltd [2018] EWHC 974 (Comm); DVB Bank SE v Isim Amin Ltd [2014] EWHC 2156 (Comm)), a party effecting service under a contractual provision must look to satisfy the terms of the contract to prove valid and effective service. In this case, the process service agent originally appointed under clause 40.2 of the Facility Agreement was dissolved and so, on 29th July 2024, the Claimant purporting to exercise its power under clause 40.2.2 of the Facility Agreement appointed Law Debenture as replacement process service agent and purportedly gave written notice of this appointment to the First and Second Defendants by letter dated 31st July 2024. The purported appointment of Law Debenture was undertaken by the Claimant unilaterally, notification of which was not validly given to the First and Second Defendants in accordance with the requirements of the Facility Agreement. The Facility Agreement, as amended by the Cohen email, expressly provided that for the purposes of clause 31.2, communications to the First and Second Defendants must be sent to specified postal addresses in both New York and Miami Beach, as well as to two specified email addresses for the Second Defendant. The Claimant’s original evidence was that the letter providing notification of the appointment of Law Debenture was sent by email and by post only to the First and Second Defendants’ Miami Beach address and, contrary to the notice requirements in the Cohen email, was not sent to the New York address (Mr Khatoun’s first witness statement, para. 107.2). That evidence, as supported by the USPS delivery notes, stated that the letter was delivered to the Second Defendant at an unspecified address within a Miami Beach Zip Code on 13th August 2024 and to the First Defendants on 8th October 2024 (after an unsuccessful attempt at delivery on 9th August 2024). However, the Claimant’s later evidence asserts that the letter dated 31st July 2024 was also sent to the First and Second Defendants’ New York City address by first class mail International Tracked and Signed on 1st August 2024 (Mr Khatoun’s second witness statement, para. 15), but the tracing information records only that the letter was delivered to a sorting office on 8th August 2024 and handed to a “Delivery partner” thereafter. There is no evidence as to whether and when the notice of appointment of Law Debenture was received at the New York City address.

The absurd result is that proceedings were supposedly served on the First and Second Defendants at Law Debenture on 7th August 2024 in circumstances where the First and Second Defendants did not even know that Law Debenture had been appointed as process service agent and the Claimant did not know whether the First and Second Defendants had received notification of the change of process service agent and did not wait to find out before purporting to serve proceedings.

If the commercial purpose of a process service agency clause is to provide efficiency and certainty between the parties such that the clause cannot be defeated by the unilateral action of one party (Cargill International Trading Pte Ltd v Uttam Galva Steels Ltd [2018] EWHC 974 (Comm), para. 25), that same principle of certainty must apply in the present circumstances.

The process service agency clause represents a bargain between the parties and the Court should focus on the efficacy of the contractual provisions between the parties (Bank of New York Mellon, London Branch v Essar Steel India Ltd [2018] EWHC 3177 (Ch), para. 16). The Claimant should have ensured, but failed to ensure, that a valid notice of the appointment of Law Debenture was given to and received by the First and Second Defendants before serving proceedings.

The Claimant contends that the First and Second Defendants had no power of veto over the appointment of Law Debenture and that the Facility Agreement contained no requirement for the Claimant to inform the First and Second Defendants, or the Borrower, of the appointment under clause 40.2.2 of the Facility Agreement. If that is correct, clause 40.2.2 is an unfair contract term for the purposes of Part 2, Consumer Rights Act 2015, as it creates a significant imbalance between the rights of the parties and is unfair, and is therefore unenforceable.

The Facility Agreement is a regulated credit agreement within the meaning of article 60B(3) of the 2001 Order and the Claimant is not authorised and regulated by the Financial Conduct Authority (“the FCA”) for credit regulated activity (Mr Khatoun’s first witness statement, para. 249). The Claimant relies on the exemption in article 60H of the 2001 Order having regard to the nature of the borrower (the High Net Worth exemption or “the HNW Exemption”). However, the conditions attaching to the application of the HNW Exemption in article 60H(1)(c) and (d) were not satisfied in that the Facility Agreement did not include a declaration made by the Borrower that he forwent the protection and remedies available under a regulated credit agreement and a statement in relation to the income or assets of the borrower, both of which complied with rules made by the FCA. CONC App, para. 1.4.6 and 1.4.7 stipulate that the declaration and statement “must have the following form and content”. As a result, the Facility Agreement was not enforceable pursuant to section 26(1) of the Financial Services and Markets Act 2000 and the Consumer Credit Act 1974.

Separately, a guarantee given in relation to a regulated credit agreement must adhere to the requirements set out at section 105 of the Consumer Credit Act 1974, including the form and content prescribed by the Guarantee Regulations made thereunder. The guarantee provisions at clause 19 of the Facility Agreement do not conform with the requirements of the Guarantee Regulations, in particular omitting the statutory heading and signature box wording required to be shown in a regulated guarantee (regulation 3(1) of the Guarantee Regulations). These requirements are mandatory (the decision in Campbell v Tyrrell [2022] EWHC 423 (Ch); [2022] GCCR 20019 is distinguishable). As a result, the personal guarantees are not enforceable against the First and Second Defendants without a Court Order pursuant to section 105(7) of the 1974 Act.

If the guarantees are unenforceable, the entry of default judgments are matters of enforcement and so should be set aside (Madison CF UK v Various [2018] EWHC 2786 (Ch); [2018] GCCR 16199, para. 4, 9, 24, 25). Clause 19.5(f) - which preserves the guarantors’ obligations notwithstanding “any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security” - does not affect the position, for various reasons, including that the loan agreement and the personal guarantees are each independently unenforceable, and because clause 19.5(f) is inconsistent with the Consumer Credit Act 1974 and so void pursuant to section 173(1) (Wood v Capital Bridging Finance Limited [2015] EWCA Civ 451; [2015] GCCR 13013, para. 31, 36).

Insofar as it is argued by the Claimant that clause 40.2 of the Facility Agreement is severable from the remainder of the agreement for the purposes of enforcement, it has been held that arbitration clauses, which are separable from the main contract, cannot be used to circumvent a consumer’s rights and protections enshrined in domestic law and upon which a domestic court is best placed to adjudicate (see Soleymani v Nifty Gateway LLC [2022] EWCA Civ 1297; [2023] 2 All ER 569, para. 149-154). Clause 40.2 must be approached in the same way.